﻿The primary purpose of this study is to look for factors that are as volatile as countries’ growth rates in order to explain the high volatility seen in them. It employs a logit framework to study how well political conditions and economic policies predict the turning points in growth. Political conditions such as regime changes and peace consistently show up as significant predictors of growth accelerations while economic reforms and monetary stabilization policies also show up as significant predictors of growth episodes, albeit to a lesser extent. Two important conclusions can be drawn from this study.
Firstly, in general political conditions are much more powerful than economic policy in predicting growth accelerations. The three types of political factors being investigated, namely leader changes, political regime changes and transitions to peace all turn out to be significant predictors of growth accelerations to varying degrees. Both transitions to peace and political regime changes are especially strong predictors of growth accelerations. With regard to regime changes, a shift towards autocracy seems to be more likely to produce growth accelerations. Leader qualities also matter in some cases, as many growth accelerations are accompanied or preceded by leader changes. The conclusion that political determinants matter more than economic determinants is particularly strong when we focus on developing countries alone, as growth episodes in these countries are dominated by changes in political regime, leader deaths and peace whilst variables that proxy for economic reforms and monetary stabilization are never significant.
Secondly, the predictors of growth accelerations are very different when comparing across sustained and “unsustained” episodes. Generally sustained episodes are more likely to happen in periods of peace and political regime stability, after a new leader has taken office, and after economic reforms and financial liberalization have been carried out. On the other hand, “unsustained” episodes are more likely to happen after an inflation crisis, a switch towards autocracy, financial liberalization and in an environment of favourable terms of trade. The variable that proxies for economic liberalization is always insignificant in all types of episodes except sustained episodes, where it is found to be consistently positive and significant. One interpretation of this is that while political changes characterize the start of many growth accelerations, only coupled with comprehensive economic reforms could a country achieve a sustained growth acceleration.
In light of the results, favourable political conditions can be thought of as more crucial than the right policy because changes in political factors characterize the start of most growth accelerations while economic reforms only determine whether the episode can be sustained in the longer run. This might have important implications on policymakers devising policy reforms to countries, especially developing countries. In particular, the challenge for economists and policymakers might well be implementing the right policy whilst maintaining the delicate balance of political situations within a country. The results obtained are generally robust to different model specifications, datasets, and a different filter for growth episodes.